By Mike Colpitts
Led by high tech giant Apple, California’s Silicon Valley is coming back to life after reaching the slowest real estate downturn in its existence. Apple, the second largest U.S. company based on stock market value, acquired Hewlett Packard’s old commercial office setting in Cupertino, and other large tech corporations are leasing offices in preparations to accommodate a larger work force.
Another major San Jose area employer, Broadcom launched expansion plans in San Jose, neighboring Santa Clara and Sunnyvale. The moves may be the first solid evidence yet that the local economy is improving, despite unemployment in the valley of 10.7% last December below the year-ago estimate of 11.5%.
Renewed efforts by firms to hire back workers underline a recovery of the housing market that has been in the doldrums for nearly five years. The turnaround of key commercial lease space is vital to the area’s economy since vacant buildings in the world’s most advanced high tech community went empty for longer than even during the dot com bubble burst in early 2000.
The recovery in Silicon Valley in the housing market provides a key barometer for the nation’s recovery as a whole. The tightening of bank lending is fundamentally different in this slowdown versus others as bankers hold tight to money to keep them in business as foreclosures rise.
In the last quarter of 2010 Silicon Valley added a half-million square feet of commercial leasing space for companies that include Apple, Maxim Integrated Products, Pricewaterhouse Coopers and Oracle. Google has announced hiring of 6,000 more employees, including 2,000 in the Bay Area alone, and other large employers are following suit.
Just five years ago the area’s housing market was a powerful force in the valley’s economic growth engine, but since that time home values in most areas of the Peninsula have been sliced in half. Battered by the financial crisis and record foreclosures, today the region’s housing market is half the size it was in terms of annual home sales hurting everyone.
Silicon Valley home sales ended 2010 down nearly 10% from a year earlier as home purchasers waited out near record low mortgage rates and lower home prices for more signs of assurance in the economy. The bulk of sales have been driven by bank assisted distress short sales and lower priced foreclosures.
The real estate crash has taken a heavy toll on the valley. Two out of five construction workers are out of work since 2005. Almost a third of workers in the financial sector lost jobs, according to the California Employment Development Department. More than half of all real estate agents and close to a third of appraisers are out of work.
The damage has yet to be contained, forcing other businesses associated with the real estate business like pest companies to close their doors, and others that don’t depend directly on the industry like furniture and appliance stores to close up shop.